Get started

Bearputspread

Options Blueprint Series [Basic]: H&S amid Surging Wheat Supply1. Introduction: Bearish Opportunity in Wheat amid Rising Supply With the U.S. Grain Stocks Wheat (USGSW) report showing a notable rise in wheat stock levels, a bearish scenario is unfolding for wheat futures. This increase in supply, which could drive prices downward, aligns with a technical setup showing potential for a bearish breakout. From a technical perspective, Wheat futures exhibit a Complex Head and Shoulders formation, signaling a possible breakdown as prices approach a critical support level. By combining the supply dynamics and technical formation, this article outlines a Bear Put Spread strategy, ideal for capitalizing on this bearish outlook with limited risk. 2. Fundamental Analysis: Rising Wheat Stock Levels The most recent USGSW report has recorded wheat stock levels breaking upward to 1.98 billion bushels, up from the previous level of 1.779 billion bushels. This shift indicates a higher supply of wheat available in the market, which, in the absence of proportional demand, typically should result in price pressure to the downside. Higher wheat stock levels often dampen demand sentiment, as markets anticipate reduced scarcity and increased availability. Such fundamentals offer a conducive backdrop for a bearish approach, supporting the downside breakout anticipated in the technical setup. 3. Technical Analysis: Complex Head and Shoulders Formation The technical landscape for Wheat futures supports the bearish case, with a Complex Head and Shoulders pattern forming on the chart. This pattern is characterized by multiple peaks (heads) flanked by smaller peaks (shoulders), indicating a potential reversal from recent highs. The critical neckline for this formation sits at 585'6. A break below this level would signal the likelihood of further downside movement. The target for this setup aligns with a UFO support zone at 552'4, which serves as an optimal price point to close the trade if the breakout confirms. 4. Trade Setup: Bear Put Spread on Wheat Futures (Ticker: ZWH2025) To capitalize on the bearish setup, a Bear Put Spread is employed. This strategy allows for limited downside risk while still offering attractive profit potential. Here are the specifics: o Contract Details for ZWH2025 (Wheat Futures): Contract Size: 5,000 bushels Tick Size: 1/4 of one cent (0.0025) per bushel (equivalent to $12.50 per tick) Point value of 1 future unit: $50 Point value of 1 option unit: $50 Expiration: December 27, 2024 Margin Requirement: While the exact margin depends on the broker, the requirement typically ranges between $1,500 and $2,000 per futures contract. The margin for a Bear Put Spread in Wheat futures options is limited to the debit paid (15.2 points *$50 = $760). o Options Strategy: Bear Put Spread Buy the 585 put option at 25.84 and Sell the 550 put option at 10.64, both expiring on December 27, 2024. The net debit paid is 25.84 – 10.64 = 15.2 points = $760 This spread provides a capped-risk opportunity for profiting from a downside move in Wheat futures. o Risk Management: While stop loss orders can be used, no stop loss is required given the limited-risk nature of the Bear Put Spread. The maximum potential loss is predefined by the cost of the spread. 5. Options Risk Profile Analysis The Bear Put Spread strategy involves buying a put option at a higher strike price (585) and selling a put option at a lower strike price (550). This configuration: Maximizes potential profit if Wheat futures drop to or below the 550 level by expiration. Caps maximum loss at the initial cost of the spread, regardless of how the underlying Wheat futures move. For this setup, the maximum potential profit is the difference between the strikes (585 - 550) minus the premium paid = 19.80 ($990). The maximum potential loss is the cost of the spread, making it a controlled-risk strategy suited to volatile or downward-trending markets. 6. Trade Execution Plan Entry: Initiate the Bear Put Spread as Wheat futures break below the 585'6 neckline, confirming the downside breakout. Target: Close the trade at 552'4, which aligns with a nearby UFO support zone, marking a logical exit point. 7. Risk Management Considerations Effective risk management is essential in any options strategy, and the Bear Put Spread inherently offers several risk control advantages: Limited Risk: By buying a put and selling a lower-strike put, the Bear Put Spread creates a defined risk position, capping potential losses at the initial premium paid for the spread. No Stop Loss Required: With maximum risk predetermined by the cost of the spread, there's no need for a stop loss, which could otherwise be triggered prematurely in a volatile market. Predefined Entry and Exit: This strategy's effectiveness hinges on precise entry (below the 585'6 neckline) and a clear target at 552'4. By maintaining these predefined parameters, the trade maximizes its alignment with both technical and fundamental setups. This trade setup offers a balanced approach, allowing for downside exposure with risk under control, making it well-suited for periods of volatility or substantial downward moves. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. Also, some of the calculations and analytics used in this article have been derived using the QuikStrike® tool available on the CME Group website. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
Editors' picks
CBOT:ZWH2025Education
by traddictiv
2
Trade Idea | NFLX | Bear Put Debit Spread StrategyI have been observing the price action of Netflix for the past days and it seems to me that it is showing some weaknesses at this level. Next earnings release will be on October 17, what ever the result is, in my opinion, profit taking can happen at this level. Shorting this one will be expensive as NFLX trades at around $707.35 at last week close and the risk of loss will be uncertain if this will try to record a new high, while the risk in using the bear put debit strategy is only limited to the debit paid at entry, i.e. the amount I paid, is the maximum risk for this trade. I will be looking at Oct25 575/570 Bear Put Debit Spreads and Oct25 600/595 and the contracts I will be trading will depends on where I am comfortable. Why am I bearish? Technically, I like fading the trade on top especially if I think the move already priced in the next earnings result. Fundamentally, the engagement growth in YouTube and other similar streaming platforms like Tubi, Pluto, Prime Video is increasing, even though some platform's content is not that great but sooner or later they'll catch up and eat the market share of Netflix. -BB
NASDAQ:NFLX
by blue039
TRADE PLAN 01/06/2023 TP1> If we manage to Trade/Bid above MAIN POC 3863, we can go for 3830 > 3841 > 3862 (Range POC) > 3878 > 3913. >To the upside, the level I'm looking it right now is the 3860, that's the POC of those last 13 days, we need to trade/bid above so we can try to break the LIS 3913/3915, where BULLS are losing the battle. TP2> If we manage to Trade below MAIN POC 3830, we can visit 3826 > 3800 > 3787 > 3766. >To the downside, the level I'm looking is 3826 (RANGE VAL), as we are already trading below 3960 12 days POC, so once we confirm below 3824, we have to break lower to find strong sellers to push below 3800, where BEARS are losing the battle. * We are trading in this 100 points RANGE from 3800 to 3900 levels for the last 13 days or about 2 weeks, I would say that the market structure are balanced, looking for stronger BUYERS or SELLERS around the VALUE AREAS. Below is my previous comment from yesterday:. For now no direction in the markets, just range trades, we should break anytime soon out of this BOX, and I was hoping that today with FOMC minutes we could go search some new levels, out of balance, but... Mr Market had other plans, so for now lets trade the levels and see how it goes by Friday NFP. >As we didnt break the RANGE, now its a matter of one single REPORT, NFP by tomorrow 8:30am, there's only one way to make money tomorrow, and the way is to be IN ALREADY !! The movement will be soon, and the TRADE will make it or break it bt 8:30am and will set the tone for the following weeks for a BEARISH or BULLISH continuation. >I'm using $IWM PUT DEBIT SPREAD with 43DTE for my BEARISH BET, this is kind of a LOTTO PLAY, because the TRADE will be moving a lot in one direction, the advantage here is that if its a fake out UP, I have 43 days to manage and decide what to do with it... If you want to take a trade now, you would have to go with FUTURES, or FUTURES OPTIONS using GLOBEX . #tradesafe #sizekills #justonemoretrade
CME_MINI:ES1!
by IronMan_Trader
Bearish Divergence in AdanientHello Traders. I've observed bearish divergence in NSE:ADANIENT . It seems strength wise resistance has been achieved by the price and now it's time for a small retracing wave. In past few trading sessions indecisive, small and weak candles have formed. This shows the weakness and buyers are no longer willing to drive the price further high. 1715 is the POC level. One can enter near the level if the price comes around. Hello Trader. Above is purely my opinion. It doesn't mean that you need to trade accordingly. Please note that I'm not Sebi registered advisor or technical analyst. Trade on your own conviction and please consult your advisor before investing.
NSE:ADANIENTShort
by Ami8singh
DETAILED TA & FA for SPY June 29 296/297 Bear Put SpreadWe are taking a bearish position in SPY, S&P 500 ETF that represents 1/10th of the broad-market SPX. We are taking a bearish positions for both fundamental and technical reasons. Our position is a bear put spread with expiry this Friday. We are writing the 296 puts and buying the 297 puts for a total debit of .73 per contract. Per contract, the max profit is $27 and the max loss is $73 if SPY finishes above 297 on Friday. This position has defined risk/reward characteristics and is -120 deltas. Technically, there is a clear descending triangle. Descending triangles during downtrends serve as continuation patterns. When the price breaks through the support, it is best to take a short position, if there is a volume confirmation (done on high volume). This just occurred, thus we are initiating our position with a SPY price target of 290.82 (a drop of 92%, the height of the descending triangle formation. This movement is confirmed by the negative and diverging MACD, Parabolic Stop and Reverse indicator above the candles and a DI- above the DI+ on the ADX. Fundamentally, geopolitical tensions are escalating as the U.S. takes a hard line on Iran and China. Iran has announced that there is “no longer a path of a diplomatic solution” with the American President as Pres. Trump imposed sanctions yesterday. Mnunchin followed Trump’s lead and indicated that financial sanctions will be imposed. This leads to increased instability, and as the market is trading near all-time highs, would interfere with the bull run. U.S. officials also downplayed expectations from the Trump-Xi G20 meeting, which could have dire bearish consequences.
AMEX:SPYShort
by LaurenTrading